Describe the financial markets and the key financial institutions.
Firms use financial capital to buy and operate physical capital.
Gross investment is the total amount spent on physical capital in a given period. Net investment equals gross investment minus depreciation.
Wealth is the value of what people own; saving is the amount of disposable income that is not spent, and it adds to wealth.
The market for financial capital is a market made up of the markets for loans, bonds, and stocks.
Explain how borrowing and lending decisions are made and how these decisions interact in the loanable funds market.
Other things remaining the same, the lower the real interest rate or the higher the expected profit rate, the ...